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The North Carolina Senate’s proposed budget for the next two fiscal years is packed with policy around new health care initiatives, including repealing North Carolina’s hospital capacity regulation laws, trimming vacant state job openings and increasing rates for childcare subsidies.

The spending plan calls for allocating about $32.6 billion in the coming fiscal year and $33.3 billion in the next. Part of that spending will go to replenishing the state’s “rainy day” reserve fund, and $700 million is earmarked to Hurricane Helene recovery.

The Senate’s plan would also reduce the income tax rate for North Carolinians from 4.25 percent to 3.49 percent in 2027. In the past, the General Assembly mandated that income taxes could only be reduced further if the state met certain revenue levels, but Senate leader Phil Berger said the budget bill would eliminate some of the restrictions that would have prohibited income tax reductions.

NC Senator Phil Berger (R-Eden) presented the Senate budget plan in a news conference at the state legislature on April 14. Credit: Grace Vitaglione / NC Health News

Members of the Republican majority in the Senate say that the spending plan saves taxpayer money while still meeting the needs of North Carolinians. The chamber’s Democrats say the budget falls short on rural health care access while increasing tax cuts that they say disproportionately help the wealthy. They also say that the budget underfunds Medicaid and fails to account for state employees’ increased cost of living.

This spending plan is only the first step in the biennial budgeting process. The plan now moves to the state House of Representatives, which is slated to present its plan in coming weeks. Then both chambers will hash out their different visions for state spending in a conference committee. The budget is due by June 30, the end of the fiscal year, but lawmakers often miss that target.

“State budgets are multibillion-dollar puzzles that we have to put together carefully,” Senate Leader Phil Berger (R-Eden) told reporters in an April 14 news conference about the budget.

Sen. Michael Garrett (D-Greensboro) told reporters after his chamber’s vote on Wednesday that the budget process lacks transparency — the plan was put together without any committee hearings where the public could provide input. He said even some members of the Republican caucus didn’t know what was in the spending plan.

“If you genuinely want to see bipartisanship in the budgeting process, that needs to be transparent, open and done in regular order, and that’s just not the way this leadership operates,” he said.

Under the senate’s plan, state employees would receive a 1.25 percent raise in the coming fiscal year, as well as a $3,000 bonus spread over the two years of the state biennium. State-funded registered nurses, licensed practical nurses and certain health care technicians would receive an additional 2 percent raise.

The spending plan also cuts hundreds of state jobs, including more than 425 positions in the Department of Health and Human Services. The majority of those DHHS job cuts — 290 — would come from the behavioral health budget. Most of those 290 positions would be hard-to-fill jobs at the state’s hospitals and health care facilities that largely serve people with mental health and developmental disabilities where the positions have been vacant for more than a year.

Medicaid funding gets tweaked

Medicaid, the state- and federally funded program that provides health care services for more than 3 million North Carolinians, has costs that fluctuate each year based on the number of beneficiaries and the costs for their care. The state health department creates an annual forecast on how costs might change and then asks the legislature for funding adjustments based on those predictions — known as the “rebase.”

The budget presented last month by Gov. Josh Stein funded that rebase to the tune of $700 million, which is what forecasters at the Department of Health and Human Services say is needed in the coming year.

DHHS also asked for an additional $87 million to support the Healthy Opportunities Program, a pilot project providing services to people in three rural areas of the state. Since its launch in 2022, the program has provided assistance to nearly 30,000 people across three regions of the state.

Beneficiaries are eligible for deliveries of food, rides to doctor’s appointments and other services designed to combat social, economic and geographic issues that contribute to poor health outcomes and increased cost.

An independent evaluation shows that by providing qualifying enrollees support for housing, food, safety and non-health care-related transportation (such as to the grocery store), the pilots have driven down the cost of health care by as much as $1,020 per pilot participant per year — largely by preventing beneficiaries from getting sicker or from using more expensive kinds of care.

“In Western North Carolina, this translates to $11.9 million in annual savings through participants’ improved health and reduced hospital and emergency room use,” wrote Laurie Stradley, who leads Impact Health, the organization that oversees implementation of the program in western North Carolina.

The evaluation also predicted that savings would grow over time as participants’ health outcomes improve.

In contrast, the proposed Senate budget provides $500 million for the Medicaid rebase this year and does not explicitly designate extra funding for continuation of Healthy Opportunities (often referred to as HOP).

“The governor’s request was above and beyond the HOP expansion that is in the base budget. He asked for additional funds,” argued budget crafter Sen. Ralph Hise (R-Spruce Pine). “There is a disagreement between central staff at the General Assembly and the governor’s office as to what is rebase and what’s included.”

“This lack of funding for the existing HOP regions puts at risk the positive health and economic outcomes that North Carolina communities, including counties in western North Carolina impacted by Hurricane Helene, have seen through the pilot program,” said a statement from a DHHS spokesperson.

The spokesperson also said HOP partners have been instrumental in helping people in communities affected by Hurricane Helene to recover.

State staffing cuts

To realize some savings, Senate budget writers cut state positions that have been vacant for at least 12 months.

Most of those positions at HHS would likely be cut from the three state psychiatric hospitals, Central Regional Hospital, Cherry Hospital and Broughton Hospital, according to DHHS.

Those facilities have struggled to recruit health care staff, but managers of those facilities have tended to use money from the unpaid salaries to hire contract workers, who are often more expensive than state employees, to fill the gaps.

Permanently cutting the staff numbers will reduce the number of patients the facilities can safely serve, the departmental spokesperson argued.